The Rise, Fall and Rise Again of Private Evergreen Funds in Israel

A brief history – attracting private wealth

The Israeli investment buy-side market can broadly be divided between two groups:

• Israeli institutional investors (IIIs), which include provident, pension and educational funds, insurers, endowments, and sectorial provident funds; and
• family offices (single and multi) and high net worth individuals (HNWIs).

Open-end private investment funds investing in non-traded assets (“private evergreen funds” or PEFs) first appeared in Israel in 2014 when IBI Investment House launched the country’s first PEF – the IBI CCF Fund – investing in consumer loans via a US lending platform. At its peak, the fund reached USD800 million in assets under management (AUM).

Following IBI’s success, additional players entered the market, each offering PEFs with distinct underlying assets. Examples include:

• IBI’s subsequent funds such as the ComReit Fund and the Secured Bridge Loan Fund;
• Phoenix Insurance and Harel Insurance, which established their own PEFs;
• independent funds such as the Golden Bridge Fund – Israel’s flagship PEF investing in hard money lending in the US with over ILS1.5 billion in AUM.

Initially, PEFs were designed to attract private wealth and were highly successful. This success inspired local players to “import” foreign PEFs by setting up open-end feeder funds, allowing Israeli HNWIs to invest in leading global PEFs. Global firms were quick to respond, entering the Israeli market directly or through joint ventures with local partners.

While institutional investors were initially hesitant, by 2023 many began to allocate capital to PEFs. Today, locally managed PEFs (including feeders to global funds) hold more than USD10 billion in AUM, primarily from HNWIs investing through individual retirement accounts (IRAs).

This development reflects a global trend. Major international players such as Blackstone, KKR, Apollo and StepStone have established PEFs, and Hamilton Lane has joined the ecosystem, promoting its PEF both globally and in Israel. According to PitchBook, global PEF AUM reached USD405 billion in 2024 and is forecast to surpass USD1.1 trillion by 2029.

PEF structuring – not just another investment fund

Structuring a PEF requires a unique approach. While close-end funds (eg, private equity, venture capital or real estate) totally restrict redemptions and their assets are not valued on a frequent and regular basis, open-end hedge funds rely on the liquidity and transparency of traded assets.

PEFs, however, are open-end by design but invest in private, non-traded assets. Creating such a vehicle requires advanced financial engineering to transform illiquid holdings into a structure that provides some degree of liquidity and valuation transparency. It demands interdisciplinary expertise and a deep understanding of asset behaviour under both normal and stressed conditions.

Liquidity and valuation mechanisms such as gate provisions and suspension clauses must be tailored to the specific asset class. For example, a PEF investing in peer-to-peer (P2P) consumer loans – repaid monthly over three years on a full amortisation basis – can typically redeem investors at around 10% of AUM per quarter, justifying a quarterly 10% gate. By contrast, a bridge loan PEF investing in two-year loans with bullet principal repayment can only provide liquidity for interest income, leading to a more restrictive 5% quarterly gate.

Valuation policies also vary. A P2P PEF must adopt a strict approach to defaults, as there is no collateral, while a bridge loan PEF backed by real estate collateral can apply a more flexible methodology reflecting the underlying asset’s value.

The rise of PEFs in a zero-interest environment

“a rising tide lifts all boats” (John F. Kennedy)

The post-2008 era of low interest rates following the subprime crisis, provided fertile ground for PEF growth in Israel. As traditional bank deposits offered minimal returns, HNWIs sought higher yields through alternative investments. Once the market realised low rates were here to stay, capital flowed into PEFs at scale.

Billions of shekels were invested by Israeli qualified investors (IQIs) – those holding at least ILS9.4 million in liquid assets – as well as by smaller investors. Each PEF may raise capital from up to 35 non-IQIs per year and no more than 50 in total, in addition to an unlimited number of IQIs.

The marketing of PEFs became a lucrative business for local brokers, intermediaries, insurance agencies, and (multi) family offices, some earning higher commissions than the fund managers themselves. Certain intermediaries even began launching their own PEFs, sometimes structuring products to circumvent offering restrictions by issuing certificates or notes that indirectly represented PEF exposure. Aggressive marketing practices proliferated.

“only when the tide goes out do you discover who’s been swimming naked” (Warren Buffett)

As long as markets remained stable and liquidity ample, few questioned these structures. But when the cycle turned, weaknesses were exposed.

2023: the reckoning

When interest rates began to rise in 2022, liquidity pressures emerged. Many investors sought redemptions to cover expensive loans or reposition portfolios. Some PEFs implemented gates as designed; others opted for orderly run-offs, suspending redemptions and liquidating assets gradually to avoid fire sales. These were legitimate business responses under the circumstances.

For example, Blackstone’s BREIT received many redemption requests in late 2022 and early 2023 and imposed an investor level gate allowing redemption at 2% of net asset value (NAV) per month and 5% of NAV per quarter.

However, funds established by intermediaries or marketed aggressively with high up-front fees faced severe strain. Once redemptions began, asset valuations were tested, defaults surfaced, and losses mounted. Some PEFs collapsed, leaving investors – including those who had invested retirement savings via IRAs – with heavy losses. Legal disputes followed, and high-profile cases such as Slice, Wealthstone, and Montro attracted extensive media coverage and regulatory scrutiny.

PEF regulation in Israel

Israel’s regulatory framework for PEFs remains underdeveloped. Whether structured as Israeli limited partnerships (ILPs) or offshore entities controlled from Israel (eg, in Delaware, Cayman, Ireland or Luxembourg), the Israeli law that PEFs operate under, predates the state itself. The Israeli Partnerships Ordinance, dating back to the British Mandate, provides minimal guidance for ILPs, with fewer than ten relevant provisions. Euroclear even refuses to issue International Securities Identification Numbers for ILPs, citing legal uncertainty.

As a result, the Israeli Securities Authority (ISA) regulates PEFs primarily through restrictions on distribution rather than fund operations. Key constraints include:

• the Securities and Mutual Funds Law, which limits each PEF to 50 non-IQI investors; and
• the Advisory Law, which treats PEFs as financial products and as such, to market them one must have a marketing licence issued by the ISA, unless the investor is deemed “super-qualified” with at least ILS12 million and substantial market expertise.

2025: tectonic regulatory shifts

Following public outcry over failed PEFs, both in local media and from investors, regulators took decisive action. In November 2024, the ISA published its policy paper on the marketing of PEFs and similar investments (the “ISA 24 Paper”), clarifying permissible practices. This triggered extensive audits of both PEFs and intermediaries:

• PEF audits examined offering practices, investor limits and intermediary relationships; and
• intermediary audits reviewed compliance with non-IQI limits, conflict management and disclosure of placement fees.

The ISA 24 Paper caused widespread disruption as market participants paused sales to reassess compliance. In September 2025, the ISA introduced its Investment Codex (“ISA Codex”), intended to reform investment distribution practices, it represents a fundamental shift in the way investments are distributed in the Israeli market – with a particular focus on PEFs. However, ambiguity over its precise implications has left the market in a state of uncertainty.

In parallel, the Capital Markets and Long-Term Savings Authority (the “LTS Regulator”) proposed amendments in June 2025 prohibiting IRA investments in PEFs – effectively excluding alternative assets from IRAs. This stands in sharp contrast to global trends: in the US, recent reforms have expanded IRA investment options to include private equity and other alternatives.

Thus, the Israeli PEF market now faces the paradox that misconduct has led to overly restrictive regulation.

The future is now

Despite the current regulatory turbulence, the market’s long-term trajectory appears positive. The lessons of recent years have fostered greater sophistication among both managers and investors. A second generation of PEFs, managed by more experienced sponsors and investing in advanced asset classes – such as real estate debt funds employing AI-driven underwriting, small-business lending platforms, and litigation finance – is emerging.

Looking ahead, there is reason for cautious optimism. In most OECD countries, investors with USD/EUR1 million in all investable assets (excluding their home) qualify for access to alternative investments. In Israel, the threshold remains much higher: ILS9.4 million (around USD2.8 million) in liquid assets only.

I believe there will likely be a reform in 2026 that may lower this qualification threshold, aligning Israel with OECD standards. This would significantly broaden the eligible investor base, enhance fund quality, and deepen market maturity. While greed and aggressive marketing can never be fully eliminated, a more open and competitive environment would reduce the incentives for abusive practices and strengthen investor protection.